SCOTUS Gives Fed Contractors Mixed Bag

Last week the U.S. Supreme Court issued an opinion that refines and re-defines liability for contractors accused of defrauding the Federal Government under the False Claims Act (“FCA”) in Universal Health Services, Inc. v. U.S. The FCA creates broad, punitive remedies against contractors who defraud the Federal Government by seeking payment under government programs in a fraudulent manner. In this case, UHS allegedly obtained Medicaid reimbursements for services that were provided by unlicensed or under-licensed health practitioners, in violation of Medicaid requirements. UHS claimed that it could not be liable under the FCA because it never made any false statements to the Government about the licenses of its providers. An appellate court disagreed, holding that every time a contractor submits a bill to the Federal Government, it impliedly certifies that it is in compliance with all applicable laws, rules, and regulations. Thus, if a contractor is not in compliance, its impliedcertification that it is in compliance constitutes unlawful fraud under the FCA.

In a complicated decision, a unanimous Supreme Court agreed, but only somewhat. The Court held that: (1) a contractor violates the FCA when it submits a claim but fails to disclose its noncompliance with material program requirements that make the submission misleading with respect to the services the contractor provided; (2) this holds true regardless of whether or not compliance with the program requirements is expressly described as a condition of payment by the Federal Government; (3) only material misrepresentations are actionable under the FCA, and the materiality standard is a “rigorous” one that does not turn on the mere fact that a specific program violation would entitle the Government to refuse payment. Thus, while the Court embraced the “implied certification” doctrine, it did narrow it somewhat, it strongly reinforced the FCA’s materiality standard, and it explicitly reaffirmed the notion that materiality questions can be addressed through motions to dismiss and summary judgment motions. Overall, not a bad day for contractors, but not a great one.